September 15, 2022

What’s so great about The Merge?

Ethereum finally upgraded its Proof of Work architecture to Proof of Stake, thus completing what was commonly being called “the merge.” Up until September 15, 2022, there were two chains running in parallel on the Ethereum network: 1) the Mainnet used proof of work, and 2)  the Beacon chain, created on December 1, 2020, which used proof of stake as their consensus mechanism. For tech nerds and crypto enthusiasts, the 9/15 merge was exemplary. The Mainnet supported multiple tokens, DeFi apps, and crypto transactions worth millions of dollars. Any error during the merge could have led to irreplaceable damage, but it didn’t. Unlike the proof of work concept that uses mining for consensus, proof of stake uses the concept of validation. So instead of competing for generating solutions to high compute problems, validators need to put up stakes from their share of currency. Whoever validates a transaction is then rewarded accordingly. The decision of who gets to validate any transaction is decided randomly using an algorithm which weighs the amount of stake and the experience of the validator. In the case of Ethereum, this shift changes two things.

  1. It effectively eliminates high consumption of energy, reducing the environmental concerns of crypto transactions, making Ether more sustainable and scalable.
  2. Since who gets to validate a transaction depends upon the weighted measure of stake and experience, the reward and penalty structure of the system changes. Simply put, people who can bet high stake value more consistently will be rewarded more.

This creates new incentives for institutional investors to systematically invest in Ether as shares of stock that generate dividends or bonds that pay a yield. It can also have negative effects on small players, but there is still time for this problem to make it up to the charts of top concerns.

While Ethereum seems to be moving towards creating some stability in the crypto world, risks, uncertainty, insecurity and regulatory tussle around the nature of the token still remain.

Vietnam Implements Data Localisation

In 2018, Vietnam introduced a data localisation regime for domestic and foreign technology firms under the Cybersecurity Law (CSL, 2018). In the absence of implementation guidelines, the law was not enforced in practice for several years. On 15 August 2022 Vietnam issued a decree clarifying the conditions for enforcement of the CSL.  The decree comes into effect on 1 October, 2022.

While the decree does not provide for a specific form of data storage and leaves this up to the enterprises, it applies to three categories of data

  1. Personal information such as financial records, biometric data, information on ethnicity or political views;
  2. Users’ relationships: information about friends and groups users have connected or interacted with
  3. User metadata and identifiers: account name, time log, credit card details, phone number, email and IP address

Domestic enterprises including telecommunications, Internet or value-added service providers that collect, exploit, analyze or process data on users will need to store such data locally for a period set forth by the government. There is no restriction on storage of data on servers located overseas; however, domestic firms are mandated to find technical solutions to enable storage of local copies of data in Vietnam.

Foreign firms providing, managing or operating  telecom, domain names, email, data sharing or storage, e-commerce, payments, online transport, video games, social media, platforms for communication in the form of text, voice, video, email and games services are required to  enable local storage of data and maintain a representative office in Vietnam. The data localization kicks in if services of foreign firms have been used to violate cybersecurity laws, if they have failed to comply with collaboration requests from the Police Department for Cybersecurity and when directed by the Ministry of Public Security (MPS). Foreign firms are given 12 months from the date of the decision to comply with data localization requirements but the period for maintaining the local presence in Vietnam commences from the date the enterprises receive a request from the authority.

Some ambiguous provisions will have to be further clarified. It is unclear whether the data stored in Vietnam must be original or a copy and whether the time limit on data storage is applicable to foreign enterprises only.  A letter to the Vietnamese Prime Minister from the U.S. Chamber of Commerce, the American Chamber of Commerce Hanoi and the Asia Internet Coalition notes the decree is creating uncertainty and could have a “considerable impact” on investment. The industry associations are seeking detailed guidance on the interpretation of the regulation.